Students at Progreso High School — "home of the Mighty Red Ants" — read to elementary schoolers in the district.

A “systematic breakdown” is how a recent report from the Texas Education Agency described the Progreso School District.

The South Texas town has been the center of an investigation after concerns were raised about the school’s finances and management. Amid all that, however, another battle is brewing: a debate between the school district and the state of Texas over the residency status of the students.

Patrick Michels, staff writer for the Texas Observer tells the Standard that the state suspects that 100 out of 2,000 students may be living outside of the district’s boundaries, perhaps even in Mexico.

“The lawyer for the school district isn’t sure exactly where that list came from, he says in the lawsuit that it’s just hearsay that the state’s relying on for this list of students,” Michels says. “The district is saying that they followed up and the students do actually live in the district or should be enrolled.”

Over the years, the state has been withholding money – over $1 million annually. In March, the Progreso school district filed a lawsuit to try to get the funds back.

“It really is a novel sort of suit,” Michels says, “One of the really strange things that could happen here is that the state, just last month, indicated that it might be moving to remove the elected board of trustees and appoint new managers.”

This kind of takeover has only happened 5 other times in Texas, most recently in Beaumont and El Paso for the same reasons: financial problems. In this case, new managers could potentially throw out the lawsuit against the state.